Prompted by the fund industry probes in the US, several Canadian fund
companies are being investigated by the Ontario
Securities Commission . The issue involves
the controversial practice of allowing market timing. "Market
timers" refers to large fund holders
who traded in and out of foreign funds, based on their expected
movement the next day due to previous changes in foreign markets.

Unlike the illegal Late Trading scandal in the States, in Canada it
was and still is impossible to
buy "after the close" due to a central mutual
fund clearing system. However, the practice of market timing,
which is not illegal but which we strongly believe is unethical, was
harder to monitor with the billions flowing into and out of funds each
week.

Each of the affected fund companies have stated that they had already
put procedures in place in 2003 to catch clients who were making such large,
short-term trades, but may face financial penalties for having knowingly or
unknowingly allowed the
practice in the past. Speaking personally, we hope the actual clients and advisors who
may have participated in these practices will also see reprimands and
are forced to repay any ill gotten gains.

What does this all mean?

We have come up with two analogies that will help investors
understand how this may have affected them:

Many department stores and other retailers have product return
policies that are generous. That is generally good customer service. But
if clients abuse that policy, who is to blame? Some retail clients at
stores return their purchases after using them once. Every store has
clients that scam them, wear a dress once, then return it, or buy a tent
before the long weekend, then return it. The retailer then winds up
passing the costs of that lax return policy onto all of their good long
term clients. But it is not the retailer that benefits or should be
charged with having a lax policy, it is the clients who are doing the
scamming, who are doing something ethically wrong even if it is not
illegal.

Another closer analogy in the financial industry: If a handful of
clients scam an insurance company with bogus insurance claims, it costs
all the other policyholders a bit more. But is the insurance company at
fault for the client's fraudulent claims? We think only if they
allow it to continue to happen after it is discovered.

To our minds, the mutual fund companies are guilty of lax policies,
but do not deserve the one sided press reports that completely miss the
point that it was not the fund companies who were doing the market
timing, it was some of their clients. It is worth noting, that the only
long term clients that would have been impacted by the market timers
were in international funds, and if even measurable, the effect would
likely only have affected prices by fractions of cents a share. We're
not being apologists for the companies being investigated - they should
have had policies that would have stopped a handful of their clients
from abusing the system. At least they all do now.

It is very important to note that these investigations do not affect the
unit prices for clients who are in funds today, and the news in no way
compromises the security of your current fund investments.
However, depending on the outcome of the investigations, we hope that clients who
were in affected international funds could someday see some nominal positive
adjustments to their accounts, should the OSC find that there was any
quantifiable harm to the many long term fund investors caused by the
actions of a few short term traders.

Time To Look at Your Big Picture

One trend that Allan and I have been noticing of late is that clients
are increasingly consolidating their various accounts with ScotiaMcLeod,
and their banking with Scotiabank. For clients using online
banking, this provides the benefit of seeing all of their investments on
one screen. (Scotia's Online Banking and Brokerage site was again
voted the best in Canada by Gomez.) Especially for clients
approaching retirement, having one simplified point of contact for their
investments saves time and money, and ensures that you get the best
advice for your entire portfolio.

Remember, most fund company RRSP accounts can be consolidated into a
ScotiaMcLeod account without having to actually change the funds.
We simply request an "in-kind" transfer, and your Royal, CIBC,
TD, PH&N, Altamira, Mackenzie, Sprott or other funds appear
consolidated on your ScotiaMcLeod statement.

Please use the handy RRSP transfer
form to consolidate your other RRSPs into your ScotiaMcLeod RRSP or
contact us if you have any questions.

Resource Funds - A Way to Beat Price Increases at The Gas Pump?

Hedging Your Bets

This week, oil prices soared above $48 a barrel after data was
released showing a decline in America's fuel stocks in the aftermath of
Hurricane Ivan. With all the talk about rising energy prices, many investors wonder
what can protect them from possible further increases in gasoline, oil
and natural gas prices. Others wonder if rising energy prices will
return us to 1970s era inflation. What kinds of investments can
offer protection?

In real dollar terms, (adjusted for inflation) oil is significantly cheaper
than it was after the 1973 oil crisis. In fact, oil is still half
the price in real dollars that it was in 1980. And over the last decade,
natural resources have not been a stellar asset class. The worst 10 year performer has only returned 1% a year over the last
decade.

However,
over a
shorter 2 year period, one of the best performing asset classes has
been resource funds, largely due to the recent run up in oil and gas
prices. Resource funds can include mining and other
resource extraction industries, but since there is a separate precious metals
fund category, most funds in the resources sector are primarily invested
in oil and gas exploration companies. For a client who invested $2,000 in a resource fund last year, the
average 20% return for that category to August 31st 2004
translates to a $400 gain. That would certainly offset the increased costs a
typical consumer would see at the gas pumps and on their home heating
bills.

Are you thinking "I wish I had invested in the resource
sector"? Well, not to worry. You probably did without
even realising it. Buying a resource fund or resource stock isn't the
only way to get into the oil & gas market. Since the energy sector makes up almost 20% percent of the TSX, most
Canadian investors already have good exposure to these companies through index or broadly diversified equity
mutual funds. So if you own a Canadian equity mutual fund or two, you
made money on those high prices at the pump. Now won't that make
you feel better next time you fill up?

We do have concerns that the energy sector is now fully priced, and
only significant global tensions will push oil prices higher.
We're all hoping global tensions will continue to decline and if that is
the case, there will be softness in this sector in the near term.
While your returns may not be as strong in this sector shortly, it'll
mean the world is a happier place and you'll even save some
money at the pumps.

Investing in Resources

Longer term, there is no doubt that gas reserves in North
America are on the decline, and only significant investments in LNG
(liquid natural gas) shipping from overseas will meet the significant
demand that continues to build. For this reason, many investors will want to see a portion
of
their assets invested in the natural resources sector - in spite of short term
prospects. As mentioned above, you likely already have some
exposure to resources through other investments but if you feel you
might need to up your emphasis in this field, we can help. While we
don't generally recommend investing in individual resource companies
(it's just too risky), there are several well-managed resource funds out
there. Contact
us for help - we'll want to recommend something that fits your
particular situation.

In addition to investing directly in energy funds, there are a number
of tax related flow through limited partnerships that become available
each year. For someone with an annual income of $100,000, a
$10,000 investment in a flow through partnership will yield nearly a
100% write-off and result in over $4,500 in tax savings. After a
two year holding period, the proceeds of the investment are then taxed
as capital gains when sold, for what has historically provided excellent
after tax returns. We expect only a limited selection of flow
throughs this year, and the year end ones are generally not as
attractively priced as the partnerships offered early in the year.
If you are interested in this type of investment vehicle, please
contact
us so we can provide more details on this for you.

Video Library

Short Term Rates Rise Again

In both Canada and the US, short term interest rates are on the
rise. The Bank of Canada overnight target was raised by 1/4% to 2
1/4% on September 8th. Similarly, the US benchmark Fed rate was raised
by 1/4% to 1.75% on September 21st. These are still low rates by
historical standards.

However, for longer term bond investors, we haven't really seen any
increase in rates. In fact, after the last rise in short term
rates, long rates fell, (in the US to under 4%) as investors became more confident that the
value of their long term bonds will not be eroded by future
inflation. This confounded investors who were staying short to try
and buy bonds when long rates go back up. The chart to the right
shows that long term rates in the states are actually right at their
historical average and well below their lows of the 1950's.

We expect to see a flattening of the yield curve, meaning that short
and long term rates will become more similar, but historically long term
rates are almost always higher than short rates. A strategy of
laddering bond maturities continues to work well in this environment.

For a great live update on where interest rates are, and a live
graphical update of the Canadian yield curve, please visit our bonds
quotes page.

Reminder - Our New Address Scotia Plaza 15th Floor

If you are interested in tax advantaged Limited Partnerships, Creststreet is one of
the most respected names in Canada. In addition to their oil and
gas partnerships, they have also been the first to offer investors the
ability to invest in wind powered generation projects, also with
significant tax advantages.

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The Spiess McGlade Team is a personal trade name of Carl Spiess and Allan McGlade.